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Chapter 14
1. Separation of businesses into more manageable operating units is termed centralization.
a.
True
b.
False
2. The process of measuring and reporting operating data by areas of responsibility is termed responsibility accounting.
a.
True
b.
False
3. A decentralized business organization is one in which all major planning and operating decisions are made by top
management.
Chapter 14
a.
True
b.
False
4. The primary disadvantage of decentralized operations is that decisions made by one manager may affect other
managers in such a way that the profitability of the entire company may suffer.
a.
True
b.
False
5. A centralized business organization is one in which all major planning and operating decisions are made by top
management.
Chapter 14
a.
True
b.
False
6. The three common types of responsibility centers are referred to as asset centers, liabilities centers, and equity centers.
a.
True
b.
False
7. A responsibility center in which the department manager has responsibility for and authority over costs in the
department is termed a cost center.
a.
True
Chapter 14
b.
False
8. Budget performance reports prepared for the vice-president of production would generally contain less detail than the
reports prepared for the various plant managers.
a.
True
b.
False
9. The amount of details presented in a budget performance report for a cost center depends upon the level of management
to which the report is directed.
a.
True
Chapter 14
b.
False
10. The primary accounting tool for controlling and reporting for cost centers is a budget performance report.
a.
True
b.
False
11. Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to
the control of the department manager are termed indirect expenses.
a.
True
b.
False
Chapter 14
12. A responsibility center in which the authority and responsibility for costs and revenues is vested on the department
manager is termed an investment center.
a.
True
b.
False
13. Sales commissions expense for a department store is an example of a direct expense.
a.
True
b.
False
Chapter 14
14. Operating expenses incurred for the entire business as a unit that are not subject to the control of individual
department managers are called indirect expenses.
a.
True
b.
False
15. Personnel administration expense for a department in a store is an indirect expense.
a.
True
b.
False
Chapter 14
16. The underlying principle of allocating operating expenses to departments is to assign each department an amount of
expense proportional to the revenues of that department.
a.
True
b.
False
17. The service department will determine its service department charge rate and charge the company's divisions or
departments based on the usage of the service by each department.
a.
True
b.
False
Chapter 14
18. The profit center income statement should include only controllable revenues and expenses.
a.
True
b.
False
19. Property tax expense for a department store's store equipment is an example of a direct expense.
a.
True
b.
False
Chapter 14
20. Controllable expenses are those that can be influenced by the decisions of the profit center management.
a.
True
b.
False
21. Depreciation expense on store equipment for a department store is a direct expense.
a.
True
b.
False
Chapter 14
22. Responsibility accounting reports for profit centers are normally in the form of balance sheets.
a.
True
b.
False
23. The manager of a profit center does not make decisions concerning the fixed assets invested in the center.
a.
True
b.
False
Chapter 14
24. The profit center income statement should include only those revenues and expenses that can be controlled by the
manager.
a.
True
b.
False
25. The manager of the furniture department of a leading retailer does not have control on salaries of the department
personnel.
a.
True
b.
False
Chapter 14
26. Service department charges are similar to the expenses that would be incurred if the profit center purchased the
services from outside the company.
a.
True
b.
False
27. Purchase requisitions for Purchasing and the number of payroll checks for Payroll Accounting are examples of activity
bases.
a.
True
b.
False
Chapter 14
28. The rates at which services are charged to each division are called service department charge rates.
a.
True
b.
False
29. The major shortcoming of using operating income as an investment center performance measure is that, it ignores the
amount of assets invested in each center.
a.
True
b.
False
Chapter 14
30. If Division Q's operating income was $60,000 and invested assets amounted to $400,000, the rate of return on
investment calculated would be 15%.
a.
True
b.
False
31. The rate of return on investment can be computed by dividing investment turnover by the profit margin.
a.
True
b.
False
Chapter 14
32. If the profit margin for a division is 11% and the investment turnover is 1.5, the rate of return on investment computed
would be 16.5%.
a.
True
b.
False
33. Investment turnover (as used in determining the rate of return on investment) focuses on the rate of profit earned on
each sales dollar.
a.
True
b.
False
Chapter 14
34. The ratio of sales to invested assets is termed investment turnover.
a.
True
b.
False
35. If the profit margin for a division is 8% and the investment turnover is 1.20, the rate of return on investment computed
would be 6.7%.
a.
True
b.
False
Chapter 14
36. If operating income for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin
calculated would be 24%.
a.
True
b.
False
37. If operating income for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin
calculated would be 20%.
a.
True
b.
False
Chapter 14
38. If operating income for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment
turnover would be 5.0.
a.
True
b.
False
39. If operating income for a division is $6,000, invested assets are $25,000, and sales are $30,000, the investment
turnover would be 1.2.
a.
True
b.
False
Chapter 14
40. If operating income for a division is $30,000, sales are $243,750, and invested assets are $187,500, the investment
turnover would be 1.3.
a.
True
b.
False
41. If operating income for a division is $120,000, sales are $975,000, and invested assets are $750,000, the investment
turnover would be 6.3.
a.
True
b.
False
